1.1) Field of the Invention
The method and apparatus in the present invention relate generally to the field of aggregating demand for buyer-specified goods and services.
1.2) Background
In this disclosure a seller is defined as a large seller who derives significant benefits from economies of scale where a significant increase in volume leads to a significant reduction in the cost to supply goods and services.
Economies of scale is defined as the reduction in cost per unit, for goods and services, resulting from higher volume supply. See article “what are economies of scale” by Reem Heakal in Investopedia. Higher volume leads to significant supply efficiencies and significant operational efficiencies and also results in a lower overhead cost per unit. Higher volume also allows suppliers to invest in more efficient supply procedures that also reduce the cost per unit. In addition, higher volume gives suppliers more opportunities to learn lessons that can lead to continuous efficiency improvements.
An opinion leader is a person or entity that can influence the purchase decision of a prospective buyer particularly when that buyer is considering purchasing the goods and services specified in the RFQ or RFP.
The system operator is the entity that operates the present invention. The operator user is a permanent or temporary worker who represents the system operator and is responsible for performing specific tasks in the preferred embodiment of the present invention. One or more people, entities and systems can combine to perform the role of operator user.
A Request For Quotation (“RFQ”) is defined as an invitation for a provider of goods and services to bid for the right to supply the requested goods and services to the entity that issued the RFQ. The bid usually focuses on the amount that the seller will charge for the specified goods and services.
A Request For Proposal (“RFP”) is defined as an invitation for a provider of goods and services to propose a solution to a set of general requirements, specified in the RFP, and earn the right to supply those goods and services to the entity that issued the RFP. The seller's proposal usually details how the goods and services meet the generic requirements and the amount the seller will charge for the goods and services. The description of the preferred embodiment of the present invention focuses on RFQs but, to one skilled in the art, it is evident that the present invention is equally applicable to RFPs. In fact, a requirement for a good such as a high definition television could be written as a very specific RFQ, if the author is aware of existing offerings that meet the requirement, or can be written as a RFP if the author is not aware of a specific solution that meets the needs.
Seller surplus is defined as the difference between a seller's quoted price and the minimum price that the seller is willing to charge for goods and services. Rational sellers usually try to increase profits by increasing seller surplus. The main objective of the present invention is to minimize seller surplus by motivating the seller to reduce the seller's quoted price toward the minimum price that the seller is willing to charge for the specified goods and services.
Sellers usually analyze markets then develop goods and services to address a perceived need. Sellers then market their goods and services to targeted market segments. To consummate a transaction, sellers usually make goods and services available to buyers then buyers select the offering that best meets their needs. This procedure is typically seller driven and seller controlled.
Large organizations have the knowledge, skills and resources to specify the goods and services they desire, define acceptable conditions for transactions, attract competitive sellers then order in sufficient volume to minimize seller surplus. This procedure is buyer driven and buyer controlled but works best when a large organizational buyer has more bargaining power than the seller. In fact, in some cases, sellers may be willing to provide goods and services to large organizational buyers below their cost to obtain the large organizational buyer as a reference customer.
Consumers and small organizations usually do not have more bargaining power than a seller (e.g., large organizational seller). This is because consumers and small organizations usually do not have the combination of knowledge, skills, resources, and volume to increase seller competition to the point where sellers will unilaterally minimize seller surplus to win the business. Consequently, consumers and small organizations usually cannot specify and obtain goods and services on similar terms to large organizational buyers.
Stores are the traditional venue of consumer buyers, small organizational buyers and sellers to exchange payment for goods and services. This traditional purchase procedure is seller driven. Catalogs, telemarketing and classified advertisements are other examples of seller driven purchase procedures. The seller usually sets the price that the buyer accepts or rejects. Buyers usually cannot specify the goods and services that are being sold. Moreover, the price range available for negotiation is usually much smaller than the actual seller surplus. Consequently, when purchasing goods and services in a traditional venue, such as a store, buyers have little or no chance to minimize seller surplus.
Exchanges such as the New York stock exchange are a market place for buyers and sellers to exchange payment for goods and services oftentimes on equal terms with each other. Exchanges tend to be driven by the market makers and tend not to favor the buyer or seller. U.S. Pat. No. 4,903,201 is an example of an exchange driven commerce system. When purchasing goods and services in an exchange, buyers pay the market price and have little opportunity to specify the features for goods and services or minimize seller surplus.
Auctions enable consumers and small organizations to exercise some price competition but the seller often has a price reserve that may prevent minimization of seller surplus. An auction item will only be sold if a bid exceeds its reserve price. In auctions, consumers and small organizations usually cannot specify the goods and services that are being auctioned. Rather, the buyer can select from the limited set of goods and services on offer. The seller usually controls the features of the goods and services and the terms and conditions of the transaction. An example of an auction system is eBay.
Reverse auctions enable a consumer or small organization to advertise an offering for which sellers can compete by reducing the price of their bids. However, for small volumes, sellers will usually only reduce their price, to the point of minimal consumer surplus, only if the goods and services are obsolete or perishable. In fact, some sellers may be willing to price obsolete goods and services close to their supply cost especially as the value of those goods and services approach zero due to impending obsolescence. Similarly, sellers will be willing to price perishable goods close to their supply cost as the value of those goods approach zero due to the impending expiration of usefulness. An example of an obsolete good is a first technology that has been superseded by a newer second technology that has substantial advantages over the obsolete first technology and also has a lower price. Fruit is an example of a perishable good. When a fruit ages to the point of going bad its value will usually decline toward zero. Another example of a perishable good as is a non-refundable airline ticket that may have limited or no value after the flight is complete. While traditional reverse auctions can reduce the lowest bid price toward the point of minimal seller surplus for obsolete and perishable goods and services, they do not allow small buyers to aggregate demand, control the features of the goods and services or specify the terms and conditions of the transaction. In addition, traditional reverse auctions do not change the terms and conditions of the offer as the price declines. In the present invention, the number of committed buyers is a key element of the “purchase offer”. As the price of the lowest bid declines, more buyers will commit to the purchase offer thereby changing the volume and motivating sellers to further reduce their bid price. Unlike a traditional reverse auction, the purchase offer in the present invention becomes more attractive as the lowest bid price declines and more buyers commit to the RFQ or RFP.
A buyer driven procedure is one where the buyer seeks sellers and the buyer also exercises some control over the features of the offering and over the terms and conditions of the transaction. Generally, the buyer and seller consummate a contract based on mutual promises to perform. A job advertisement is a buyer driven procedure. The employer seeks to procure the services of an employee and specifies the terms and conditions of the employment agreement.
Consumer co-operatives or “co-ops” are buying associations that enable consumers to aggregate their demand and purchase goods and services at discounted prices. Traditional co-ops can be effective when purchasing standard goods and services, such as Ketchup, in bulk. U.S. Patent application 2006/0047583 describes a co-op system that enables consumers to aggregate demand and purchase in bulk at discount prices. However, a key disadvantage of traditional co-ops is their inability to specify the requirements and features of the goods and services and the terms and conditions of the purchase agreement. The objective of co-ops is the bulk purchase of standard goods and services not the specification of goods and services then the motivation of sellers to supply the specified goods and services at a price that minimizes seller surplus.
A traditional RFQ or RFP procedure enables large organizations to specify the features of the desired goods and services, specify the terms and conditions of the transaction and offer sufficient demand to motivate sellers to incur the substantial costs associated with submitting a bid. U.S. Pat. No. 5,758,328 describes a traditional RFQ system. However, individual consumers and small businesses usually do not have the knowledge, skills, resources and volume to motivate sellers to incur the significant bidding costs associated with a traditional RFQ or RFP process.
Other buyer driven procedures that are applicable to consumer buyers include name your own price services that aim to match a binding offer with a binding bid, such as U.S. Pat. No. 5,794,207, and services that identify a list of non-binding sellers that match a non-binding bid, such as lendingtree.com. However, these services do not empower buyers to control the features of the goods and services, specify the terms and conditions of the transaction or aggregate demand to motivate sellers to reduce their price toward the point of minimal seller surplus.
Accordingly, there is a need for a system that enables consumer buyers, and small organizational buyers, to specify the requirements, features, terms and conditions to procure goods and services then aggregate demand to achieve the critical mass required to motivate sellers to reduce their price toward the point of minimal seller surplus. This is required for all types of goods and services, including those that are not obsolete or perishable. Such a system would address the deficiencies of the prior art. In fact, there is a plurality of advantages of such a system. This system is the only way for consumer buyers and small organizational buyers to exercise the bargaining power enjoyed by large organizational buyers when negotiating with large organizational sellers. This system enables buyers to aggregate knowledge to specify the requirements, features, terms and conditions to procure goods and services, aggregate demand then solicit competing bids from sellers to reduce price and ultimately minimize seller surplus. This system also enables sellers to better understand demand drivers and improve the selection procedure for their future offerings. Finally, this system reduces costs for buyers and sellers by minimizing the traditional transaction costs associated with locating each other, communicating requirements, explaining offerings, agreeing terms, consummating the transaction and resolving disputes.
The applicant is not aware of any other commercially viable system that addresses the shortcomings of the prior art and also includes the features stated above. It is therefore an object of the present invention to set forth a system that enables buyers to aggregate knowledge to specify requirements, features, terms and conditions to procure goods and services, aggregate demand then solicit competing bids from sellers to reduce price and ultimately minimize seller surplus for all types of goods and services including those that are not obsolete or perishable.
It is another object of the present invention to enable the author of the RFQ (or RFP) to aggregate knowledge by soliciting comments from opinion leaders and feedback from reviewer buyers about the requirements and features of the offering and also on the terms and conditions of the transaction then modify the requirements, features, terms and conditions to specify an offering that will attract a binding commitment from a critical mass of prospective buyers.
It is a further object of the present invention to enable the author of the RFQ or RFP to solicit endorsements from key opinion leaders. These endorsements will motivate groups of prospective buyers to review the RFQ or RFP then make a binding commitment. It is yet another object of the present invention to enable the author of the RFQ or RFP to solicit and incorporate feedback from and a plurality of prospective buyers. The combination of endorsements from opinion leaders and incorporation of feedback from prospective buyers will result in a more attractive RFQ or RFP that will increase the number of buyers who will be willing to make a binding commitment to the RFQ or RFP. In turn, aggregation of demand will create the economic incentive for sellers to customize their offering to meet the requirements of the aggregated group of committed buyers. This is especially the case when the customization effort is limited to configuring combinations of standard options, such as in the case of computers where the buyer may specify a preferred combination of CPU, RAM, hard drive capacity and other standard options.
It is an object of the present invention to enable the author of the RFQ or RFP to solicit and incorporate comments from key opinion leaders and feedback from a plurality of prospective buyers then obtain binding commitments from buyers prior to distributing the RFQ or RFP to prospective sellers. This eliminates the need for sellers to negotiate with individual buyers and also eliminates the need for individual buyers to negotiate with sellers. It also eliminates the need for sellers to market their services to the group of buyers.
It is another object of the present invention to enable buyers to aggregate demand to achieve the critical mass required for economies of scale to effect a significant reduction in the seller's unit cost. This benefit is particularly advantageous when procuring goods and services from large retailers who have large distribution networks that have substantial economies of scale. This benefit is also advantageous when procuring commodity items, such as paper clips where economies of scale are also substantial. This benefit is also particularly advantageous when procuring perishable items, such as hotel rooms, where the seller will be highly motivated to sell its remaining volume at a large discount just before its value expires. This benefit is also advantageous when procuring obsolete items, such as older technologies, where the seller will be highly motivated to sell its remaining inventory at a large discount as the expiration of its value expires. Conversely, this benefit is also advantageous when procuring state-of-the-art offerings, such as the latest wireless phone device, where the seller will be highly motivated to sell a large volume of initial units at a discount to increase volume and reduce its unit supply cost due to economies of scale.
It is another object of the present invention to solicit competing bids from sellers. The global reach of the present invention, ready access for sellers and convenient search features for sellers, eliminate the need for authors to invest limited resources in marketing their purchase offers to prospective sellers. Rather, sellers can search for and find RFQs and RFPs at a relatively low cost. For a consumer, or small organization, these marketing and related solicitation costs can represent a significant portion of the purchase price for the desired goods and services. Without aggregation of demand, global access to sellers, and seller driven search, the solicitation costs and other transactional costs would outweigh the discount that could be achieved by an individual consumer or small organization.
It is an object of the present invention to enable the author to specify the number of buyers who have made a binding commitment to the RFQ or RFP. It is another object of the present invention to enable sellers to improve their bid as the number of committed buyers increase. It is a further object of the present invention to enable additional buyers to make a binding commitment to the RFQ or RFP as the bids improve. It is yet another object of the present invention to enable lower bids to motivate higher volume and higher volume to motivate lower bids causing a continuous reduction in the offer price toward the point of minimal seller surplus. It is a further object of the present invention to alert specified buyers when the bid price falls below a pre-determined amount. It is yet another object of the present invention to alert specified sellers when the number of committed buyers exceed a predetermined number.
It is another object of the present invention to enable the author to specify requirements, features, terms and conditions of goods and services then aggregate demand to reduce the price toward minimal seller surplus for all types of goods and services including those that are not perishable or in danger of obsolescence. In such cases, the driver of the price reduction is economies of scale in addition to the impending decline in value of the goods and services.
It is another object of the present invention to provide knowledge enhancement tools and services that help an author draft a RFQ or RFP in accordance with the best practices of the system operator without the requirement for author training.
It is another object of the present invention to standardize the format for RFQs and RFPs to facilitate review and facilitate comparison of purchase offers by sellers. It is another object of the present invention to standardize the format of bids to facilitate review and comparison by buyers.
It is another object of the present invention to use a registration procedure to qualify buyers and sellers before they are permitted to use the present invention. Each buyer must sign-up as a member before making a binding commitment to an RFQ or RFP and each seller must sign-up as a member before making a binding bid. It is another object of the present invention to use a transaction tracking procedure to update and maintain the qualification status of buyers and sellers. For example, if a buyer or seller is at fault in an excessive number of disputes then that buyer or seller may have its membership privileges revoked.
It is another object of the present invention to guarantee the authenticity of the RFQ or RFP by obtaining binding commitments from the buyers prior to accepting a binding bid from a seller.
It is another object of the present invention to make a best effort attempt to authenticate the identity of sellers to determine their capacity to provide the goods and services specified in the RFQ or RFP.
It is another object of the present invention to include standard terms in the RFQ or RFP that make the RFQ or RFP enforceable and also enforces a pre-determined dispute resolution process. It is another object of the present invention for the committed buyers and sellers to agree to refer all disputes to a pre-determined independent third party arbitrator whose decisions shall be binding on all parties regarding payment, delivery of goods and services, resolution of deficiencies and interpretation of all aspect of the RFQ or RFP procedure.
It is another object of the present invention to specify a predetermined person, such as the author, as the signatory on behalf of the committed group of buyers. It is another object of the present invention to require buyers and sellers to agree that the terms and conditions in the RFQ or RFP are legally binding when a bid is accepted and that bid, its acceptance and the RFQ or RFP are all controlled by the procedure specified by the present invention.
It is an object of the present invention to include terms in the RFQ or RFP that specify the duration of the bidding period and the options available to the author to extend or terminate the bidding period. It is another object of the present invention to include terms in the RFQ or RFP that specify the conditions under which the author can withdraw the RFQ or RFP. It is a further object of the present invention to specify the leeway available for the author to negotiate with sellers.
It is an object of the present invention to include conditions in the terms of use and in each RFQ or RFP that enforce regional, national, federal, state and local laws. It is another object of the present invention to include conditions in the terms of use that enforce the pre-determined business practices of the operator of the present invention and also enforce the operator's pre-determined morality terms.
It is an object of the present invention to transfer payment from buyers to sellers in accordance with the payment schedule and payment terms specified in the RFQ or RFP. It is another object of the present invention to facilitate the transfer of goods and services from sellers to buyers in accordance with the schedule and terms specified in the RFQ or RFP.
It is another object of the present invention for the buyers and sellers to remain anonymous until the point in the procedure specified within the RFQ or RFP.
It is another object of the present invention to support electronic transfer of digital goods and services from sellers to buyers using predetermined encryption and validation techniques.
It is another object of the present invention to enable sellers to better understand demand drivers and improve the selection procedure for their future offerings.
These and other objects of the present invention will be apparent to those skilled in the art from the following detailed description of the present invention, the accompanying drawings and the appended claims.